This week’s news about the Epicor acquisition is a major event within the ERP and business management software industry. Epicor announced that it had “entered into a definitive agreement to be acquired by the global investment firm KKR from funds advised by Apax Partners.” KKR is a worldwide leader in the capital investment sector. Other members of the KKR portfolio include First Data, GoDaddy, Savant Systems and Sonos. KKR’s investments are global with industries ranging across the board, including technology, health care, energy and retail.
Some Background on Epicor, Activant and Apax
In 2011, Epicor and Activant were purchased by Apax, therefore merging into one company but keeping the Epicor name. At that time, Epicor was focused more on supply chain in manufacturing, while Activant on distribution. The merger led the company as a whole to become more focused on core products, particularly Epicor 10 (E10) for manufacturers and Prophet 21 (P21) or Eclipse for distributors. The benefit of this dual purchase was that it extended the supply chain offering without the products bumping into each other.
Fast forward to 2016, Epicor has been looking for an investment acquisition where a private equity firm would not buy Epicor to bring it together with another company, or break it up. Rather, Epicor was looking for an investor that aligned with their strategy of investing in people, processes and systematic approaches, and one that would not change or disrupt Epicor’s products, services and industry focus. The acquisition by a premium investor like KKR fits well into those criteria.
Ultra’s Take: What the Acquisition Means for Epicor
We see the Epicor acquisition as a solid benefit for KKR’s growth capital portfolio due to four main competitive strengths within Epicor and its products:
- Cloud – Epicor offers a choice of deployment options, however its cloud initiative continues to grow and there should be a continuing evolution on how its Cloud products are taken to market.
- Global growth – Currently, Epicor does ~20% of its business outside of North America, and KKR should see this as an opportunity to improve its international position in an expedient manner.
- Opportunities for acquisition – Consolidation continues to happen within the enterprise software industry. Small niche providers, such as the recent acquisition of Dot Net IT by Epicor, should give KKR additional opportunity to expand its portfolio.
- Product – The strength of Epicor’s current, industry-specific software portfolio – P21, E10, Eclipse and Eagle products – provide industry-specific solutions for manufacturing, wholesale distribution, and retail distribution.
Given Epicor’s competitive position among the other leading ERP software companies for the manufacturing and distribution industries, it is likely KKR would focus on investing more into their cloud products, improving even further Epicor’s market share, top-line revenues, and the customers they serve. Because this is an investment acquisition, Epicor will be pushed to grow their products, staff, and top-line presence and growth in these industries.
What does the Epicor acquisition thus mean for its software systems? That will be determined over the next three to five years, but there continues to be a focus on cloud solutions. With strong financial backing, Epicor can focus on product enhancements, improve deployment models and establish a stronger reseller channel for its product. Epicor can produce an even more scalable product that is not designed just for mid-market companies, but can be efficiently deployed in smaller organizations and still have the depth to manage large corporations.
Looking at an Acquired Company
As an independent consulting and enterprise software selection firm, we look at many different criteria when guiding clients through a selection, acquisition and deployment. Some of the criteria that make up a client’s decision to purchase software are:
- Vendor Synergy – This is geared toward how well-aligned the vendor is to the client’s business, their culture, and how well they fit into the client’s perspective of “Who is the best partner for us? With whom do we want to do business?”.
- Solution Agility – How the investment/roadmap strategy of the solution aligned to keep pace with the client’s transformation roadmap and future aspirations.
- Implementation Confidence – During an acquisition or divestiture, there tends to be a fair amount of employee turnover. This short-term situation can cause disruption to various services that the company provides, which can impact the overall confidence of success in a complex ERP project. Using a 3rd party VAR or implementation partner can provide some degree of mitigation in this circumstance.
With any acquisition or divestiture, there are risk factors that should be considered as well as positive potential that can be achieved in the event of a spin-off or sale. Epicor’s heavy leverage and use of the Microsoft platform will most likely continue and improve, while major version upgrades to products like E10 will be more widely adopted by both resellers and organizations using the application.
In short, Epicor is a company of nearly $1 billion in annual sales. It remains securely in position to continue its growth and continue to compete with the other ERP vendors in the marketplace, in particular SAP, Oracle, Microsoft, Infor, NetSuite and IFS.
More Coverage of the KKR-Epicor Acquisition
Joe Cowan, President and CEO of Epicor stated about the acquisition:
“Our top priority continues to be delivering cloud-ready, market-leading solutions paired with a world-class customer experience. KKR shares our vision of providing innovative technology with a clear focus on helping customers grow business, not software.”
Further information about the Epicor acquisition can be found on the Epicor press release.